A Theory of Worker Turnover and Knowledge Transfer in High-Technology Industries

This paper builds a theoretical model to address evidence on labor mobility patterns in high-technology firms engaged in R&D. Worker turnover in these industries enables the efficient transfer of R&D knowledge across firms in a production environment characterized by volatile returns to R&D investment. We show that both the size and composition of labor turnover are affected by the extent to which R&D knowledge can be transferred and applied across the production processes of different firms. Our analysis also provides implications of such labor mobility for industry growth. We explain how labor turnover in the presence of knowledge transfer has contributed to the success of the high-technology cluster in Silicon Valley.